Wednesday, January 16, 2008

Merrill Lynch targetted in share investigation

The US Securities and Exchange Commission (SEC) is investigating whether Merrill Lynch used knowledge about some of the share trades the brokerage conducted for its clients to make a profit on its own account.

The US watchdog’s probe centres on whether some current and former Merrill Lynch executives engaged in a practice known as "front running" which is when a brokerage receives a large order to buy or sell a particular share from a client and quickly executes its own trade in the same stock before addressing the client’s transaction.

Merrill Lynch reported an $8.4 billion (£4.2 billion) writedown in the third quarter, much of it relating to mortgage investments. It is expected to announce a further $10 billion to $20 billion sub-prime-related losses when the brokerage reports its fourth quarter figures.

Merrill Lynch is also expected to announce on Thursday that it has agreed a second capital injection, of about $4 billion, from investors thought to include the Kuwait Investment Authority. The infusion would follow a $6.4 billion investment last month from Temasek, the Singapore government-owned fund and Davis Selected Advisors, the US asset manager.
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